DCF Interview Questions

Walk me through a DCF analysis.

Which has the biggest impact on a DCF: Revenue, COGS, or CapEx — and why?

What is generally higher, LFCF or UFCF? Can LFCF ever be greater?

What is unlevered free cash flow and how do you calculate it?

Why is change in net working capital subtracted in FCF?

Walk me through how you calculate WACC.

What are the two ways to calculate terminal value, and which do you prefer?

Why do you unlever and relever beta when calculating WACC?

What risk-free rate do you use in CAPM, and why?

Why must the perpetual growth rate be less than WACC in the Gordon Growth Model?

How would the risk-free rate change during a financial crisis?

How would the equity risk premium change during a crisis?

How would beta change during a financial crisis?

Two identical companies — one has debt, one doesn't. Which has the higher WACC?

How would you calculate beta for a private company?

In what cases would terminal value comprise a high percentage of value in a DCF?

How does increasing the tax rate affect a DCF's Enterprise Value?

What's the formula for Levered Free Cash Flow (LFCF) starting from EBITDA?

How do convertible bonds affect a DCF?

If WACC increases by 1%, what happens to your DCF value and why?

What is the mid-year discounting convention and why use it?

How long should your explicit DCF projection period be?

What are the main limitations of DCF analysis?

Next year's UFCF is $15. WACC = 12%, perpetuity growth = 2%. Calculate terminal value.

Compute DCF: 2016 EBITDA $100, interest $10, D&A $20, CapEx $20, AR +$50, AP +$30. Tax 25%. FCF grows 5%. Cash $50, Debt $200. Discount rate 10%. Use mid-year convention.